How Do Car Title Loans Work?

A car title loan is very similar to going into a pawn shop to exchange an item for a sum of money. It’s legitimate and well-regulated, and a common way many people who do not have access to much credit can use to meet their most important financial obligations on time to avoid penalty and interest piling up. The big difference, of course, is that you don’t actually drive your car to the pawnshop and leave it there until you pay off your loan. It’s the car title that is used for collateral. For more on how car title loans work, see here.

This means that while you still have possession of your car and can use it to drive to work and for other things, the lender has possession of your car title, and thus legally has a lien on your car. If you fail to pay off the loan according to the conditions agreed to ahead of time, the lien-holder may then take actual physical possession of your car.

Consider two things when taking out this kind of loan: First, is the car in your name, or is there a second name on the title? If there is, you must get that person to sign off on the loan as well. Second, make sure that you can get an extension on your loan if you run into trouble paying it off on time. Otherwise, you vehicle is gone for good.